When it involves supplying competitive worker blessings that still save your enterprise cash, Section 125 benefit plans are one of the most neglected—however most impactful—equipment to be had to employers. Often referred to as Cafeteria Plans, those tax-advantaged applications permit employees to pay for certain advantages the usage of pre-tax greenbacks, considerably growing their take-home pay even as lowering the employer’s payroll tax burden.
In this manual, we’ll damage down the diverse Section 125 cafeteria plan options, their advantages, and how Lumara Health simplifies this system thru its proprietary method—handing over unequalled cost to both employers and employees.
What Is a Section 125 Benefit Plan?
A Section 125 gain plan is a written company plan under Section 125 of the Internal Revenue Code that allows personnel to transform taxable salary into non-taxable blessings. This means employees can choose to pay for sure forms of benefits—like medical insurance rates, dependent care, or out-of-pocket medical charges—before taxes are deducted from their paychecks.
This reduces the employee’s taxable profits, which in turn reduces the corporation’s part of payroll taxes. These win-win 125 plans worker advantages are specifically appealing to small and midsize corporations looking to attract and preserve pinnacle expertise even as improving their bottom line.
Types of Section 125 Cafeteria Plan Options
There isn’t a one-length-suits-all Section 125 plan. In fact, the IRS allows lots of plan structures, and the proper one relies upon on the size of your business and your advantage method. Here are the number one types of Section 125 cafeteria plan alternatives:
1. Premium Only Plan (POP)
A POP is the maximum basic form of a Section 125 plan. It allows employees to pay their part of organization-sponsored medical health insurance premiums using pre-tax greenbacks. POPs are easy to administer and best for businesses that already provide group insurance.
Benefits:
- Low administrative attempt
- Reduces FICA and FUTA taxes for the organisation
- Increases worker take-home pay
2. Flexible Spending Accounts (FSAs)
An FSA lets personnel set aside pre-tax greenbacks for out-of-pocket medical charges (Medical FSA) or structured care (Dependent Care FSA). These budget ought to be used in the plan yr (with some carryover or grace length alternatives).
Benefits:
- Significant tax savings for personnel
- Employers keep on payroll taxes
- Boosts perceived cost of worker benefits
3. Full Cafeteria Plan
This is a higher version that consists of a menu of advantages like health insurance, dental/vision, FSAs, or even group-term existence insurance. Employees can choose the blessings they want, similar to ordering from a cafeteria menu.
Benefits:
- High customization for personnel
- Tax financial savings across more than one advantage sorts
- Encourages participation and delight
4. Simple Integrated Medical Reimbursement Plans (SIMRP)
Offered through Lumara Health, SIMRP is a proprietary enhancement to traditional Section 125 plans that makes it less complicated for employers to provide reimbursements for sure IRS-authorized clinical costs while closing compliant and optimized for tax financial savings.
Benefits:
- Customized to IRS guidelines
- Increases worker engagement
- Seamless with Lumara’s generation and assist
How 125 Plans Boost Employee Benefits
Implementing 125 plans employee benefits doesn’t simply check a compliance box—it actively contributes to a more appealing and fee-powerful benefits approach.
Increased Take-Home Pay for Employees
Employees who participate in a Section 125 plan keep on federal income tax, Social Security, and Medicare. The result is better internet pay with out increasing gross wages, which complements monetary wellness.
Reduced Payroll Taxes for Employers
Employers additionally benefit through reduced FICA, FUTA, and SUTA taxes. For every dollar an employee contributes pre-tax, the company reduces taxable payroll—creating financial savings that scale with participation.
Improved Benefits Perception
Offering a number of pre-tax alternatives suggests employees that the company is invested of their health and financial wellness. This strengthens retention and recruiting efforts.
Compliance with the Affordable Care Act (ACA)
Section 125 POPs assist employers maintain compliance with ACA guidelines by using ensuring personnel have low-cost get right of entry to to health insurance.
Challenges of Administering Section 125 Plans
Despite the benefits, many corporations keep away from 125 plans due to perceived complexity. Common issues consist of:
- Understanding IRS rules
- Maintaining required documentation
- Annual nondiscrimination trying out
- Employee schooling and communique
That’s in which Lumara Health transforms the sport.
How Lumara Health Simplifies Section 125 Plans
At Lumara Health, we’ve re-engineered the system of enforcing and dealing with Section 125 benefit plans to put off confusion and maximize returns. Our specific method combines felony compliance, advanced tax method, and smooth-to-use era into a unmarried turnkey answer.
Here’s how:
1. Integrated SIMRP and PCMP Approach
We don’t just offer the basics. The Lumara Plan integrates the Section 125 Cafeteria Plan, PCMP (Pre-tax Contribution Management Platform), and SIMRP to create a complete gain atmosphere.
This shape lets in for:
- Pre-tax deductions beneath IRS Section 125
- Strategic compensation options
- Real-time monitoring and optimization
2. Streamlined Compliance
Our expert-subsidized device ensures that each one IRS necessities—such as plan documentation, nondiscrimination trying out, and eligibility guidelines—are met with precision.
3. Automated Payroll Integration
The Lumara Plan connects immediately together with your payroll device, simplifying advantage deductions and reimbursements with out guide mistakes or spreadsheet juggling.
4. Employee-Friendly Dashboard
Employees get admission to a smooth, easy dashboard to manipulate their elections, view savings, and understand their advantages in plain language—driving better participation and pride.
5. Dedicated Support
Our onboarding specialists and compliance team are always to be had to walk you through setup, yearly updates, or employee communications. No third-birthday celebration name facilities—simply real individuals who care.
Real Savings, Real Impact
Let’s take an instance.
A company with 30 personnel participates within the Lumara Plan. On common, every worker contributes $3,000 pre-tax yearly throughout POP, FSA, and SIMRP.
Results:
- Employer Payroll Tax Savings: ~$6,885/yr
- Employee Net Pay Increase: Up to $900/year (primarily based on individual tax bracket)
- Total Plan Value: Over $30,000 in combined tax advantages
These numbers aren’t theoretical. They’re based on real metrics from Lumara customers.
Why Choose Lumara Health for Your 125 Plans?
Because we make complicated 125 plans worker blessings simple, powerful, and worthwhile. With Lumara Health, you’re now not simply adopting a Section 125 plan—you’re upgrading your whole benefits strategy.
Here’s what you get:
- Increased employee engagement
- Reduced payroll tax liability
- Full compliance, 0 guesswork
- A seamless enjoy for HR and personnel alike
Final Thoughts
A Section 125 gain plan is one of the smartest equipment you can put into effect as an organisation. Whether you’re starting with a easy POP or exploring superior alternatives like FSAs or SIMRP, the key to success is simplicity and strategy.
With Lumara Health, you gain both.
Our assignment is to help employers like you save extra, offer greater, and pressure less. Contact us nowadays to learn how our approach to Section 125 plans can rework your advantages providing and boost your bottom line.
Ready to simplify your Section 125 blessings?
Talk to Lumara Health today and discover your ability payroll tax financial savings.